Fernando Alcoforado*
According to the Institute of International Finance report, global debt increased by US$ 3.3 trillion last year to US$ 243 trillion. Economists warn that when this multi-trillion dollar bomb planted under the global economy explodes, the crisis will be worse than that of 2008. This is a record three times higher than world GDP. In developed countries, the extremely high indebtedness ratio reached 390% of GDP, while in emerging markets the effect was the opposite with the increase in debt, which has slowed to its lowest level since 2001. The world economy may not be able to withstand to the debt of US$ 243 trillion dollars. Is the end of globalized capitalism?
This uncontrollable and gigantic debt is the result of the irresponsible policy of the central banks of the world’s countries that have become unable to control the public deficit and are addicted to printing money by generating inflation and contracting debts. Global central banks are creating debt without worrying about what might happen in the future. At the end of 2018, the International Monetary Fund (IMF) pointed to unsustainable global debt as the main threat to the world economy. The IMF said governments in most countries have failed to adopt the necessary reforms to protect the banking system from the risky actions of financiers that have caused a powerful chain reaction and the collapse of 2008. The real global debt machine is the United States , whose deficit has nearly tripled since 2000 and now exceeds US$ 73.6 trillion, representing 106% of GDP.
Non-financial corporate debt in the United States is close to highs before the 2008 crisis. Many financial analysts believe that no matter how much the Trump administration tries to get rid of the excessive debt burden by the end of the second presidential term, the trend increase in US public debt will not be reversed, as the budget situation is worsening. The US federal budget deficit increased 17 percent in fiscal year 2018 to US$ 779 billion. In the short term, this trend will continue due to lower tax revenues and increased defense spending.
The Congressional Budget Department predicts that this year’s fiscal deficit will be US$ 897 billion and by 2022 will exceed the trillion dollar. Investment banks, however, believe US public debt will reach 140 percent of GDP by 2024. Experts speculate that the US government has little time to reverse this situation, which otherwise would lead to a full-scale crisis comparable to the Great Depression of the 1930s. If the global economy cannot digest this huge debt, the ensuing crisis will lead the world to economic depression, mass poverty, geopolitical instability, political turmoil and wars.
According to François Chesnais, professor emeritus at the University of Paris, 13 this whole situation stems from the functioning of the world economy, which since the early 2000s has been based on two pillars: the debt-driven growth regime adopted by the United States and Europe, and the global export-oriented growth regime, where China is the main industrial base and Brazil, Argentina and Indonesia are the key providers of natural resources. In Chesnais’s view, this crisis represents the dead end, the absolute impasse of the debt-led regime. Chesnais says the second pillar is slightly better, but growth based on global exports will not work for long without strong external demand, especially from the United States and the European Union. This means that China’s commodity demand will not be able to compensate for the likely fall in demand from the United States and the European Union (CHESNAIS, François. Les dettes illégitime. Quand ês banques font main basse sur ês politiques publiques. Paris: Editions Raisons d´agir, 2011).
The ongoing global crisis is a product of changes that have been going on in the world for several years. Half a century ago, banking seemed to be a relatively simple art. Banks underwent a process of transformation into their core business, leaving behind their classic role of intermediary between savers and lenders. Benefiting from the opening of the world economy since the 1990s, these institutions have become diversified financial groups and conglomerates whose profits come mainly from the creation of credit, which has become the main means of creating currency. In this process, the Central Banks of all the countries of the world have completely lost control of their national economies. The global transaction values cited by Chesnais illustrate the size of the financial sector: in 2002, world GDP was US$ 32.3 trillion, while financial transactions amounted to US$ 1,140.6 trillion. At the beginning of the crisis, in 2008, while the world GDP was US$ 60.1 trillion, financial movements reached US$ 3.628 trillion dollars.
The cycle of expansion and accumulation of global financial capitalism has stumbled upon the huge global financial crisis and the synchronized slowdown in economic activity with the global crisis of 2008. Since the outbreak of the global crisis in 2008, governments around the world have become hostages of system adopting fiscal and monetary policies favorable to banks to save them from bankruptcy and contrary to the interests of their populations. Chesnais says that in 2008, the threat to global finance came from US investment banks and major insurers. The next major financial episode will happen when a segment of Europe’s banking system collapses in Greece, Spain or Italy that is under way.
According to François Chesnais, there will be no end to the global crisis as long as banks and financial investors are in command of the world economy, with governments adopting policies entirely driven by the interest of the rentiers and to give survival to the debt-driven regime as it has been happening today. The world capitalist system is headed toward the possibility of a combination of financial collapse with immense recession, if not worse as the depression that will surely change the world. There is every reason to believe that, before its collapse, the world capitalist system will be ruined by economic depression for many years leading to the collapse of many firms, the economic indebtedness of the heavily indebted nation states, and mass unemployment on a planetary scale.
To prevent the outbreak of a new global crisis, there is an urgent need to establish a stable international monetary system, which is not subordinated to financial capital. The conditions for this include the cancellation of much of the sovereign debt considered illegitimate, as well as a large part of the domestic debt, the adoption of a correct taxation for finance and capital income, the reestablishment of a real public control of the system a tight control of capital flows and an effective fight against tax havens. This means that governments should stop subordinating themselves to the dictates of financial capital and suspend the payment of their debts even if they lead some banks to bankrupt whose resources that would be destined to be invested in public investments to resume economic growth.
In the face of the chaos that has dominated the world economy that is bound to worsen, the time has come for each country and humanity to equip themselves as urgently as possible with the necessary instruments to control their destiny, given the world capitalist system be an excellent example of entropy because it has declining yields and tends to collapse as an economic system. Until it collapses, the world capitalist system will, during this period, produce deaths and destruction on an unprecedented scale in the history of mankind in all quarters of the Earth. The barbarism characterized by revolts and social revolutions in each country and by international conflicts will be the main mark of the world capitalist system until the end of its trajectory. To have control of its destiny mankind must replace the world capitalist system with a new economic order that is capable of exercising the governability of the economy and ensuring world peace. This is the only means of survival of the human species.
* Fernando Alcoforado, 79, awarded the medal of Engineering Merit of the CONFEA / CREA System, member of the Bahia Academy of Education, engineer and doctor in Territorial Planning and Regional Development by the University of Barcelona, university professor and consultant in the areas of strategic planning, business planning, regional planning and planning of energy systems, is the author of 14 books addressing issues such as Globalization and Development, Brazilian Economy, Global Warming and Climate Change, The Factors that Condition Economic and Social Development, Energy in the world and The Great Scientific, Economic, and Social Revolutions that Changed the World.
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